Picking up Nickels

Tuesday, October 16, 2012

September CPI-U numbers released: October 2012 I Bonds worth considering

The U.S. Bureau of Labor Statistics released the September 2012 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.45% last month.

As always, now is one of the best times to consider purchasing I Bonds. The reason for this is that we now know what the rate of return for October 2012 I Bonds will be for both the first and second six month periods, which is important since I Bonds must be held for 12 months before they can be redeemed.

Using the CPI-U data from March 2012 (229.392) and September 2012 (231.407) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for October 2012 issue I Bonds:

That would mean these bonds would earn a rate of 2.20% (using 0% fixed & 2.20% variable) for the first 6 months and 1.76% (combined 0% fixed & 1.76% variable) for the second 6 months. In this low interest rate environment, Series I savings bonds are still a solid choice when compared to short term investments like the 1 year CD @ 1.10% APY currently being offered at Bank of Internet USA.

I already bought the maximum amount from treasurydirect.gov in January, so I can't get my hands on any more until 2013 at the earliest. I'll be monitoring the CPI-U in the meantime and try to decide if I should buy ASAP or wait until May 2013.

On the jobs front, the unemployment rate for September fell to 7.8% (the lowest since January 2009) and claims for unemployment benefits fell to the lowest levels in almost four years. Of course, since this is silly season Republicans like former GE CEO Jack Welch are crying foul over these numbers selfishly putting their own political interests above the interests of the average American worker looking for a job (nice job guys!). As for more important matters, oil prices have dipped to $92 during that time although it appears that those of us who heat our homes with oil are looking at an expensive heating bill this winter.

On the financial front, my only major upcoming move will be maxing out 2012 Roth IRA contributions for Mrs. Frugalson and myself. Also, another interesting data point will be the release of the CPI-U numbers for September 2012 on October 16th, which is relevant for Series I savings bonds purchases since we will be able to calculate the initial variable inflation component for November 2012 issue savings bonds. Of course, I already bought the maximum amount for calendar year 2012 from treasurydirect.gov in January but this new variable rate will still be in place on January 2013 when I am eligible to purchase additional bonds.

In other news, I have officially cancelled my S Corp's health insurance plan since we are now covered by Mrs. Frugalson's employer provided health and dental insurance. This should be a huge savings for our family in the neighborhood of $1000+ per month, which will provide a nice financial boost to our bottom line (along with Mrs. Frugalson's salary). :D